Montana Department of Revenue v. Dray

No. 93-588

IN THE SUPREME COURT OF THE STATE OF MONTANA

MONTANA DEPARTMENT OF REVENUE,
Respondent and Appellant,
v.
ALLAN K. DRAY,
Petitioner and Respondent.

APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Jeffrey Sherlock, Judge presiding.

COUNSEL OF RECORD:
For Appellant:
Lawrence G. Allen, Tax Counsel, State of Montana,
Department of Revenue, Helena, Montana
For Respondent:
James P. Sites and Scott M. Heard,
Crowley, Haughey, Hanson, Toole & Dietrich,
Billings, Montana

Submitted: June 28, 1994
Decided: August 18, 1994
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
Allan K. Dray petitioned the District Court for the First
Judicial District in Lewis & Clark County for judicial review of an
order of the State Tax Appeal Board which affirmed the Department
of Revenue's (DOR) assessment of taxes, penalties, and interest
against Dray. The District Court granted the petition for judicial
review and reversed the decision of the State Tax Appeal Board.
The DOR appeals the order of the District Court. We affirm the
District Court.
The following issue is presented on appeal:
According to Montana's tax code, may a nonresident taxpayer
deduct alimony payments from income earned in Montana to arrive at
Montana adjusted gross income?
The parties agree that there are no disputed facts in this
case. They have stipulated to the following facts: Dray is a
Texas resident who reported income from Montana sources, including
royalty income and income from agricultural property located in
Montana, for the years 1984 through 1988. In 1984, Dray and his
wife, a nonresident of Montana, entered into a written separation
agreement which provided for alimony payments from Dray to his wife
of $10,000 per month commencing June 1, 1984. In tax years 1984
through 1988, Dray claimed a deduction for alimony paid in arriving
at his adjusted gross income for federal income tax purposes. He
claimed a similar alimony deduction in the calculation of adjusted
gross income for Montana income tax purposes.
 The DOR assessed deficiencies against Dray for the years 1984
through 1988 based on its disallowance of the alimony deduction.
Not including penalties and interest, the total amount assessed by
the DOR was $25,745.
We review conclusions of law to determine whether the district
court1 interpretation of the law is correct. Steer, Znc. v. Department of
s

Revenue (1990), 245 Mont. 470, 474-75, 803 P.2d 601, 603.

The DOR contends that Dray is not entitled to claim an alimony
deduction because adjusted gross income for nonresident taxpayers
is calculated pursuant to 15-30-131, MCA (1991), and that statute

does not expressly provide an alimony deduction for nonresidents.
The DOR cites the general rule that deductions only exist by
express grant of the Legislature. GBN,Znc. v. DepatWzent of Revenue
(lggl), 249 Mont. 261, 266, 815 P.2d 595, 597; Q p m Mines C o p . v.

MadzionCounty (1977), 172 Mont. 116, 118, 560 P.2d 1342, 1343. This

contention is based on the DOR1s premise that § 15-30-131, MCA

(1991), provides a method to determine adjusted gross income and

income tax deductions for nonresident taxpayers separate from that
provided for resident taxpayers under 15-30-111, MCA (1991).
These statutes, in relevant parts, state the following:
15-30-111. Adjusted gross income. (1) Adjusted gross
income shall be the taxpayer's federal income tax
adjusted gross income as defined in section 62 of the
Internal Revenue Code of 1954 ....
15-30-131. Nonresident and temporary resident taxpayers
-- adjusted gross income --
deductions. (1) In the case
of a taxpayer other than a resident of this state,
adjusted gross income includes the entire amount of
 adjusted gross income from sources within this state but
shall not include income from annuities, interest on bank
deposits, interest on bonds, notes ... . Adjusted
gross income from sources within and without this state
shall be allocated and apportioned under rules prescribed
by the department.

(3) In the case of a taxpayer other than a resident
of this state who is a resident of a state that does not
impose a tax on the income of natural persons residing
within that state, the deductions allowed in computing
net income are restricted to the greater of those
directly relating to the production of Montana income or
a prorated amount of those allowed under 15-30-121. For
the purposes ofthis subsection, deductions allowed under
15-30-121 apply only to earned income and must be
prorated according to the ratio that the taxpayer's
Montana earned income bears to his federal earned income.
The DOR further argues that it is apparent from 5 15-30-131,
MCA (1991), that the Legislature intended that deductions for
nonresident taxpayers be proportionate to Montana income.
While we recognize the rule that the intention of the
Legislature controls statutory construction, State ex rel. Neuhausen v.

Nachtsheim (l992), 253 Mont. 296, 299, 833 P.2d 201, 204, we must

first look at the plain meaning of the statute's language. GBN,

815 P.2d at 597. If the language is clear and unambiguous, no
further interpretation is required. GBN, 815 P.2d at 597. Here,

there is no reason to resort to legislative intent because the
language of 5 5 15-30-111 and -131(1) and (3), MCA, as it appeared
in 1991, is clear and unambiguous.
As Dray points out, while the allocation language in
subsection -131(1), MCA (1991), may indicate that "[aldjusted gross
income from sources within and without this state shall be
allocated and apportioned under rules prescribed by the department
. .. ," no rules had, at any relevant time, been promulgated by
the DOR to allocate or apportion the income to which a nonresident
taxpayer's alimony payments are attributable or to prorate the
alimony deduction based on the source of the taxpayer's income.
referred to in 5 15-30-131(3),
Furthermore, the lldeductions"
MCA (1991), are "deductions allowed in computing net income." Net
income is defined in 3 15-30-101(11), MCA (lggl), as adjusted gross
income "less deduction^.^' These deductions are commonly referred
to as "below-the-linen deductions. Alimony is an wabove-the-line"
deduction, a deduction used to compute adjusted gross income
pursuant to I.R.C. 5 62(a)(10) (1988).
The DOR concedes that alimony is an above-the-line deduction,
but reasserts that such a deduction is not allowed unless
specifically provided for by the Legislature.
We agree, but nonetheless conclude, that an alimony deduction
is specifically provided for by Montana's incorporation of the
federal definition of adjusted gross income in 5 15-30-111, MCA
(1991), and that based on the definition of "taxpayer" as used in
that section, there is no basis for denying that deduction to
nonresident taxpayers. See 5 15-30-101(19), MCA (1991). We have

held in Baker Bancoporation v, Department of Revenue (1983), 202 Mont. 94,

657 P.2d 89, that when a statute expressly incorporates federal

gross and net income, then the deductions allowable in federal
taxation must also be deemed allowable for purposes of Montana
taxation.
We are not persuaded by the DOR1s argument that because
5 15-30-131, MCA (1991), specifically applies to nonresidents, it
should control over 5 15-30-111, MCA (1991), which defines adjusted
gross income. Despite the language in 5 15-30-131(1), MCA (1991),
that "adjusted gross income includes the entire amount of adjusted
gross income from sources within this state . . . ,If the only
definition of "adjusted gross income" in the Montana tax code is
the one found at 5 15-30-111, MCA (1991).
Based on the foregoing, we conclude that the District Court
correctly interpreted the provisions found at 5 5 15-30-111 and
-131, MCA (1991), and therefore, affirm the judgment of the
District Court.

We concur:
that the following certified order United States mail, prepaid, to the

THE SUPREME COURT